Crypto World Lesson UST-LUNA Becomes a Worthless Coin
People who invest in cryptocurrencies Many people are probably familiar with Stablecoin as a coin whose value tends to be more ‘stable’ than any other coin type. including bitcoin
But the events that happened in the past week It has become a big lesson for traders in the crypto market that no coin has true ‘fixed’ value.
But what is the cause? Why is stablecoin not stable anymore? Today, TODAY Bizview will summarize it.
[The Beginning of the Disaster, UST Dropped Peg]
It all started on the night of May 9, 2022, when TerraUSD (UST) broke the peg (Peg).
It fell below $0.99 for the first time. It has always been hovering around $0.99-1.00.
After the peg was dropped, UST is still in dire straits. It dropped to a record low of $0.9998 on May 11. almost no value
On the same day, Do Kwon, one of the creators of UST, tweeted: In conclusion, He will be with everyone to rebuild it. won’t run away.
The initial solution is to generate (Mint) LUNA coins to freeze the price and help UST return to the $1 peg.
He reasoned that UST’s pessimism and its sharp drop in prices this time were because people either exited the coin or moved (swap) into other coins too much.
His solution caused LUNA’s supply to more than quadruple from 715 million tokens to 2.9 billion tokens because UST was partially pegged to LUNA.
If this issue ends, Do Kwon plans to adjust the asset collateral mechanism.
Previously, it was reported that UST’s pool liquidity was relatively low, about $138 billion, or about 48 billion baht, but exit liquidity was as high as $531 million, or around 18 thousand. million baht
[ Closing the scene with LUNA, the former pair of coins, the distant future ]
In addition to UST, the pair’s LUNA has continued to decline over the past week (5-13 May) from $86, now falling below $1 to 0.00003 (at 16.30). a.m. May 13, Thailand), with its lowest point at $0.0000112.
As for the cause, investors initially expected the decline in bitcoin (BTC), but the real reason came from the correlation between LUNA and UST, when UST dropped heavily, the two coin maker Terra Protocol (UST and LUNA). It will burn (Burn) UST and dig out more LUNA.
The incident prompted Terra to halt its blockchain system to mitigate the impact of last night’s attack (approximately 1:00 a.m.), before resuming operations an hour later (around 1:00 a.m.).
However, the price of LUNA will continue to plummet, forcing Binance to temporarily suspend trading on LUNA before announcing its removal from the board. From futures mode and margin mode and the LUNA/UST pair was officially removed from the trading board on May 13.
The incident was so dire that many investors were sold out in less than a week, and LUNA coin creator Do Kwon had to ask the South Korean police to protect them from a group of ill-wishers. who arrived at the accommodation
The stablecoin crisis is not over yet. Investors are concerned that other stablecoins that use Algorithmic Stablecoin (Altcoin: Algorithmic Stablecoin) will meet the same end as UST, such as TRON (TRX), falling about 10%.
[ ‘Bitcoin’ did not survive, falling below 1 million baht ]
As for the situation of Bitcoin (BTC), known as Pure Cryptocurrency, yesterday (May 12), the price dropped 1 million baht, the lowest in 16 months, hitting a low of 900,100.10 baht on the Bitkub board, lower. More than 50% from the peak
The downgrade is expected to be negative on the case of UST and LUNA, as well as the impact of monthly US inflation figures. April came out higher than the market forecast at 8.3%, like many others. Coins in the market that have fallen more than 30-50%
As Bank of America states in its latest analysis, Bitcoin can no longer act as a hedge against inflation.
Because after the Fed raised interest rates to fight inflation. Bitcoin slid, as did US stocks and other global risk assets, as investors worried the Fed’s interest rate hike and balance sheet (QT) cuts could hurt liquidity in the risky market. including the crypto market
[Attacker earned 28 billion from the attack.]
The catastrophe that started with UST dropped a peg, causing many in the community to start investigating the suspected ‘Attacker’ or ‘Whale’, this time.
Some are speculated to be the work of the creator of the recently launched stablecoin. Because he has tweeted about the acquisition of UST and said that there may be a secret plan. However, this is just a speculation.
Another speculation is that Terra itself has opened up the vulnerabilities to attackers more easily since Terra’s Luna Foundation Guard (LFG) acquired bitcoin in bulk as an underlying asset for UST.
Another vulnerability arises from 4Pool, a Liquidity Pool opened by cooperation between four stablecoins: UST, USDT, USDC and FRAX.
It is estimated that the method used by Attacker is to borrow (Short) 100,000 BTC at around $42,000 while also withdrawing $1 billion of UST. As a result, the process of withdrawal of funds until it collapses (Bank Run) and UST slips off the peg.
At this point, LFG had to sell off the bitcoin it had to bring UST back to the desired peg level, during which time it dropped to $29,000.
In addition, the same attacker is expected to open a short position in LUNA as well. Rounding it up, it is estimated that this attacker will profit from the attack around $800 million or about 28 billion baht.
[ ‘Fed’ raises interest rates, crypto market dominoes]
‘Paramin Insom’, the founder of Satang, said: ‘The crypto market has now entered a true bear market which has been signaling since the beginning of the year.
During this past week Bitcoin price dropped below 1 million baht due to market pressure panic from stablecoin UST and LUNA crisis, which caused DeFi and stablecoin, among others to be sold.
What’s even more pressing is that the Federal Reserve (Fed) will have to raise interest rates more seriously because of the Consumer Price Index (CPI), which is used to calculate inflation. It accelerated to 8.3% in April, more than the 8.1% forecast and near the highest level in more than 40 years.
The negative factor from the Fed’s fight against the inflation crisis is expected. remain for at least 3-4 months from now. would put pressure on cryptocurrencies to still be able to test the lower tiers.
‘Looks technically Bitcoin and other altcoins are in a downtrend and it won’t end in 1 to 2 weeks, maybe 1 to 2 months at least. The price of bitcoin may move in a wide range between 32,000-25,000. The dollar is several weeks from now. I would like to warn traders that now do not use emotions in trading, be conscious and manage your finances well.’
Sarun Siripannon, CEO of Satang Corporation, said it might be difficult to find out what coins or assets are safe-haven at this time. Of course, when the Fed raises interest rates to get rid of inflation. It will cause risky assets such as stocks, gold, crypto, to be under pressure, that is, not going up or down again in the next 4-5 months.
When almost every asset is sold (Except oil and gas, which has been rising during this 1-2 months) money will flow back to the US dollar (USD) again because the USD appreciation means that there are no other assets that are attractive to invest.
[ 2 main rules you must ask yourself before investing ]
From this incident, he would like to leave a comment that Before investing, you should ask yourself 2 questions: 1. How much will the asset to be invested go down (Maximum Drawdown) and 2. How long before that asset will start to recover significantly?
Most people tend to think only about point 1, but forget to ask number 2, about the timing of holding assets during the downtrend until it returns to the profitable uptrend. Remember that timing is important. Because that means the cost of gaining or losing an opportunity.
So don’t own 100% of your assets, don’t invest in one asset class. should have cash Because assets during this period have a chance to fluctuate high prices. Don’t try to create more debt. And should not borrow money to invest at all
‘Digital assets are high-risk assets. should study to understand Trade with fundamental insights and study insights to hedge your risk. The important thing is to use consciousness and discretion in investing.’
Finally, before the end of the article Be aware that many investors have lost all their savings. to the news that some investors choose to end their lives in this crisis I would like to send encouragement to everyone through this difficult time.